Southwest Airlines Co (NYSE:LUV) is taking the heat today after the US Justice Department filed a lawsuit against the airline to recover a fine that was placed on the company during an investigation in recent years. US regulators found that Southwest Airlines did not properly maintain and repair 44 Boeing Co (NYSE:BA) 737s from its fleet. The Federal Aviation Authority (FAA) determined that between 2006 and 2009, there was a lack of proper maintenance and repairs on the 44 737s. The US lawsuit details a $12 million civil penalty for the lack of repairs. Southwest has since responded by saying that the allegations are false and will fight the fine in court.
Southwest Airlines trading up 2.20% despite lawsuit
Despite the potential fines and charges associated with the lawsuit, Southwest Airlines is up over 2.20% today in early trading, breaking out above $35 resistance to its current price of $36.10. As a whole, Southwest Airlines has been having a monster year, up 88.52% year to date and up 103.75% in the past year. Earnings are forecasted to rise 87.50% this year, 22.52% next year and 37.55% over the next five years. Sales, quarter over quarter, are up 5.60% and earnings per share is up nearly 30% during the same period.
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Southwest Airlines gains popularity for its “bags fly free” slogan, pick your own seating style, cheap airfares and now the company has just introduced Beats music library for customers to listen to music. As a promotion of new Beats music feature, Southwest Airlines is having promotions, in which, Cobra Starship will be flying from Dallas to Chicago-Midway and people onboard will have the opportunity to talk and receive autographs from the band. Southwest Airlines is also doing a similar promotion with Elephant Revival on a flight from Portland to Denver. People on Southwest Airlines flights will now be able to use their own devices to stream the Beats music playlists, via plane WiFi.
Southwest Airlines continuing to improve customer relations
Southwest Airlines Co (NYSE:LUV) certainly makes changes and improvements to attract more popularity and customer approval, and the stock’s performance proves that. Unfortunately, this lawsuit is a bit of a backpedal, but continuing to improve customer relations and giving customers reasons to choose Southwest Airlines over competitors is the key to long term success, ultimately. Additionally, with oil prices continuing to falter and hit multi-year lows, fueling becomes cheaper for the airline industry as a whole. This leads to reductions in ticket prices and more affordability for customers as well. Particularly, the fact that the holiday travel season is upon us, Southwest Airlines and customers will together cheer for lower oil. Overall, I think the lawsuit will have a muted impact on the stock, but this should certainly be a wakeup call to Southwest Airlines to have better maintenance policies on its planes.